Has ‘Supply Chain Strain’ Become The New Norm?

As Roy Williams, managing director of Vendigital, wrote in a recent article for The Telegraph, “‘Supply chain strain’ has become the new norm in the consumer-driven world of high-tech gadgetry.”

Williams references last week’s launch of the Apple Watch which represents the tech giant’s first venture into the smartwatch market.

He further suggests that with rumors of 1 million Apple Watch pre-orders in one day in the US alone and the firm now pushing estimated delivery times for its product into June, speculation is rife that Apple’s supply chain may not be able to keep up with demand.

This type of speculation ahead of a big launch is nothing new. Recently Samsung was forced to admit that it may be unable to fulfil the 20 million pre-orders received for the new Galaxy S6 and S6 Edge.

“For some companies, the struggle to meet demand is regarded as an endorsement of a product’s popularity”Roy Williams, MD of Vendigital

Although Apple is experienced in international roll-outs, it could find itself facing new challenges this time around. First of all, this launch is more complex than the introduction of another next-generation iPhone; the Apple Watch is a new product in a nascent marketplace. Forecasting demand will be especially difficult, as the potential pool of Apple Watch consumers is largely unknown, with many consumers yet to buy their first piece of wearable technology.

The product itself is also subject to a much greater degree of customisation than previous offerings. Whereas personalisation of the iPhone 5C was restricted to a simple colour choice, the Apple Watch comprises two different models (the Apple Watch and Apple Watch Sport) which come in a range of sizes and designs, with a staggering thirty-five variations available. This variety drives supply chain complexity and could potentially lead to issues with over or under supply if specific models do not sell in the quantities projected.

However, we shouldn’t read too much into the ‘hype’, particularly when it comes to speculating about Apple’s reluctance to release pre-order figures. A company characteristically coy about divulging numbers, it is likely that Apple is merely enjoying the level of attention that its success to date has afforded. Rumours of potential scarcity only add a sense of value to the product itself. This perception of success is vital, when you consider the premium $349.00 to $399.00 price tag of the most basic Apple Watch model compared to that of its competitors.

Despite the challenges that Apple faces in bringing its smartwatch to market, the outlook seems positive. Reports indicate that shipping of the product started in the US a week ahead of the April 24 launch date. It is also likely that the company’s procurement leaders have taken the required steps to achieve supply chain agility and where possible, spread risk across multiple suppliers.

This ‘supply chain strain’ has become the new norm in the consumer- driven world of high-tech gadgetry, where all eyes are on the newest and most innovative devices. For some companies, the struggle to meet demand is regarded as an endorsement of a product’s popularity. In fact, from a reputational perspective, a stock surplus would probably be more damaging to the company’s brand, than a supply shortage.

Even in the eventuality of breaks in supply and long delivery lead times, it is likely that Apple’s reputation would remain largely unscathed and this could even help to fuel demand. The bigger risk factor for the firm is the product itself; the quality, functionality and inventiveness of the technology must be in top-notch order to justify the consumer’s spend. Get this right, and the rest will follow.

Source: The Telegraph